Judge: Kenneth J. Medel, Case: 37-2019-00010218-CU-FR-CTL, Date: 2023-11-09 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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HALL OF JUSTICE

TENTATIVE RULINGS - October 12, 2023

10/13/2023  09:30:00 AM  C-66 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Kenneth J Medel

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Civil - Unlimited  Fraud Demurrer / Motion to Strike 37-2019-00010218-CU-FR-CTL BEAR VALLEY 2005 LLC VS CAULEY [IMAGED] CAUSAL DOCUMENT/DATE FILED: Demurrer, 08/29/2023

Defendants CYNDI BEILMAN and WRIGHTMAN, INC. dba SURETY ASSOCIATES OF SOUTHERN CALIFORNIA INSURANCE SERVICES' Demurrer to the Third Amended Complaint is SUSTAINED without leave to amend.

This case was originally filed in February 25, 2019, when Bear Valley 2005, LLC sued its prior counsel, Kevin T. Cauley and his firm, Schwartz, Semerdjian Cauley & Moot, LLC and Beilman and Wrightman alleging claims for breach of fiduciary duty, constructive fraud, and promissory fraud. A FAC was filed in September, 2019.

SSCM counter-sued Bear Valley for attorney's fees allegedly owed and filed a Motion to Compel Arbitration based on its retainer agreement. That motion to compel arbitration was granted in January, 2020 and the rest of the case was stayed. The claims between Bear Valley and Cauley were settled in October 2022 with dismissals filed on October 20, 2022.

On January 13, 2023, the Court found that the action was again at issue and set the trial date for January 19, 2024. The court heard Defendant's demurrer to the FAC on June 9, 2023, treating it as a motion for judgment on the pleadings. The Court granted judgment on the pleadings because the FAC failed to allege the existence of a fiduciary duty between Plaintiff and Defendants necessary to state a claim for constructive fraud.

Plaintiff thereafter served its second amended complaint alleging claims for breach of contract, and promissory fraud. Defendant indicated that it would demur to the second amended complaint on the ground that it added a new claim, breach of contract, without obtaining leave to amend. Consequently, Plaintiff brought its ex parte application for leave to file a third amended complaint to allege the additional cause of action. The Court granted the application on July 27, 2023, and Plaintiff filed the Third Amended Complaint on July 28, 2023.

Defendants now bring this demurrer to the third amended complaint, arguing (1) the breach of contract cause of action does not state a claim, it is vague and uncertain and it does not allege whether the contract is oral or written; (2) the second cause of action for promissory fraud fails to state a claim and is vague and uncertain.

Background In 2016, Plaintiff Bear Valley 2005, LLC was defending an action to enforce a mechanic's lien recorded as a lien on Plaintiff's real property by a general contractor, United Paving. [TAC, ¶ 7.] In December 2015, Plaintiff's counsel filed a motion in the action to remove the Mechanics Lien. [TAC, ¶10] In addition, and to ensure that the loan on Plaintiff's property could be refinanced, Plaintiff retained the insurance brokers Beilman and Wrightman to obtain a mechanic's lien release bond for the Mechanics Lien. [TAC, ¶s 11, 12.] That release bond was necessary because of a refinancing issue.

Defendant Beilman is a licensed surety broker and the vice-president/co-owner of Defendant Wrightman. [FAC, ¶s 2, 3.] The TAC also alleges that Beilman/Wrightman 'were also acting as a broker Calendar No.: Event ID:  TENTATIVE RULINGS

3018084  28 CASE NUMBER: CASE TITLE:  BEAR VALLEY 2005 LLC VS CAULEY [IMAGED]  37-2019-00010218-CU-FR-CTL and attorney-in-fact for International Fidelity Insurance Company', which issued the mechanic's lien release bond. [FAC, ¶ 12.] Plaintiff alleges that Beilman/Wrightman were acting as dual agents for both Plaintiff and IFIC.

On January 15, 2016, at the direction of Defendants, Plaintiff completed the bond application and delivered it to Defendants along with the requested information necessary for Defendants to procure a bond that would release the Mechanics Lien. Beilman prepared a mechanic's lien release bond to be issued by IFIC. [TAC, ¶s 14,15.] Plaintiff alleges that in obtaining the IFIC Bond, Plaintiff reasonably believed that Beilman was its agent and it relied on Beilman's expertise and representations to procure an appropriate bond that would cause the release of the mechanic's lien. [TAC, ¶ 12.] Plaintiff alleges that the IFIC Bond was defective because it did not identify the correct or any mechanics lien, but instead identifies a notice of lis pendens filed in a case that had been dismissed in November 2015. Plaintiff alleges that 'the IFIC bond provided no legal benefit whatsoever to Plaintiff.' [TAC, ¶18.] On January 25, 2016, the Court in the action to foreclose the Mechanics Lien granted Plaintiff's motion to release the mechanics lien. [TAC, ¶16.] Plaintiff notified Defendants of this fact and asked that they return the collateral for the IFC Bond.

In response to the request, on February 22, 2016, Defendant Beilman represented and promised to Plaintiff, verbally and in emails that IFIC would release collateral posted by Plaintiff to secure the IFIC Bond as soon as the Court entered its formal order releasing the mechanic's lien. In her email to Plaintiff dated February 22, 2016, Defendant Beilman stated 'As soon as Kevin [Cauley] forwards the Court doc I'll get the released (sic) processed.' Plaintiff alleges that this promise was consistent with the terms of the Bond Application and the Escrow and Client Collateral Payment Agreement in that neither document allows IFIC to retain the cash collateral provided by Plaintiff to secure the IFIC Bond upon a court releasing the Mechanics Lien. [TAC, ¶21.] On March 1, 2016, the Court signed and entered the Order releasing the Mechanics lien and expunging the Lis Pendens. On March 4, 2016, Plaintiff provided to Defendants filed copies of the orders releasing the mechanic's lien and expunging the lis pendens. [TAC, ¶s22, 23.] The condition to the release of the cash collateral thereby satisfied, on March 4, 2016, Plaintiff provided wire instruction to Defendants Beilman and Surety Associates and asked that the wire to collateral funds to the account as promised on February 22, 2016. [TAC, ¶24.] Plaintiff alleges that instead of immediately returning the collateral to Plaintiff as promised, on March 9, 2016, Beilman sent an email to Plaintiff adding another condition to the release of the collateral. In that email, Defendants Beilman and Surety Associates promised and represented to Plaintiff that if it would execute and return to a document entitled 'Cash Collateral Escrow Agreement' IFIC would release the cash collateral securing the IFIC Bond. [TAC, ¶25.] Plaintiff alleges it executed this document as requested under the financial duress. Plaintiff states it was left with no choice but to rely on Defendants' representation and promise that upon the execution and return of the Cash Collateral Escrow Agreement' the collateral would be released to Plaintiff. Based on those promises and representations Plaintiff and to obtain the immediate release of the collateral securing the IFIC Bond, Plaintiff signed and returned the Cash Collateral Escrow Agreement on March 9, 2016. [TAC, ¶27.] Plaintiff contends that the representation made by Defendants was false when made because unbeknownst to Plaintiff, '(1)the Cash Collateral Escrow Agreement was not needed to release the IFIC Bond but was rather intended to enforce the defective IFIC Bond and to give IFIC rights to reimbursement of attorney's fees and costs to which it was not previously entitled, and/or Defendant had never confirmed with IFIC that the IFIC Bond or cash collateral for same would be released upon signing of the Cash Collateral Escrow Agreement. Defendants Beilman and Surety Associates, on their own behalf and as attorney in fact for IFIC purposely concealed this fact in order to induce Plaintiff to sign the Cash Collateral Escrow Agreement to cure Defendant Surety Associates' prior failure to obtain a signed Cash Collateral Escrow Agreement which was necessary, not to obtain the release of cash collateral securing the IFIC Bond, but to protect IFIC's interests, including granting IFIC additional reimbursement rights and reaffirming its right to enforce the IFIC Bond against Plaintiff' and '(2) IFIC had no intention of releasing the IFIC Bond or Plaintiff's cash collateral security for the IFIC Bond when the Court issued its March 1, 2016 order. Rather, Defendants Beilman and Surety Associates used the false promise and representation regarding releasing the collateral upon the execution of the Cash Escrow Agreement to Calendar No.: Event ID:  TENTATIVE RULINGS

3018084  28 CASE NUMBER: CASE TITLE:  BEAR VALLEY 2005 LLC VS CAULEY [IMAGED]  37-2019-00010218-CU-FR-CTL give to IFIC a right it did not previously have – to refuse to release the cash collateral and to use it to pay its own attorneys fees while it resolved for itself the issue whether the court's order expunging the mechanics lien eliminated any rights with United Paving may have had under the IFIC Bond.' [TAC, ¶29] On these facts, Plaintiff has alleged causes of action for breach of contract and promissory fraud. There are three agreements that are alleged: (1) the agreement to procure an effective mechanics lien release bond made when Defendants were initially retained; (2) the agreement to return the cash collateral upon delivery of the court order releasing the mechanics lien made orally and in the email dated February 22, 2016; and (3) the agreement to return to cash collateral upon delivery of the Cash Collateral Escrow Agreement made in the email of March 9, 2016. The promissory fraud claim is based on the promise made in email of March 9, 2016 to return to cash collateral upon the delivery of the Cash Collateral Escrow Agreement.

Breach of Contract Defendants' first argument is that the TAC does not attach a copy of the purported contract and fails to allege its terms in sufficient detail.

Plaintiff alleges three contracts. The first agreement was made when Plaintiffs retained Defendants to procure the bond. The agreement was oral in the initial retention and was confirmed in writing, including the bond application attached as Exhibit 1 to the complaint which identifies the parties: Defendants, IFIC and Plaintiffs and the terms of the agreement – to procure a mechanics lien release bond in the principal sum of $279,403. The second agreement is alleged in paragraph 21 of the TAC and the language of the agreement, as set forth in the February 22, 2016 email is quoted verbatim.

Paragraph 21 alleges: On or about February 22, 2016, Defendant Beilman represented and promised to Plaintiff, verbally and in emails that IFIC would release collateral posted by Plaintiff to secure the IFIC Bond as soon as the Court entered its formal order releasing the mechanic's lien. In her email to Plaintiff dated February 22, 2016, Defendant Beilman stated 'As soon as Kevin [Cauley] forwards the Court doc I'll get the released (sic) processed.' This promise was consistent with the terms of the Bond Application and the Escrow and Client Collateral Payment Agreement in that neither document allows IFIC to retain the cash collateral provided by Plaintiff to secure the IFIC Bond upon a court releasing the Mechanics Lien.

The third agreement referenced is alleged in paragraph 25 of the TAC and is also quoted, dated March 9, 2016.

Paragraph 25 alleges: However, rather than immediately return the collateral to Plaintiff, on or about March 9, 2016, Defendants Beilman and Surety Associates, on their own behalf and as attorney in fact for IFIC, sent an email to Plaintiff adding another condition to the release of the collateral. In that email, Defendants Beilman and Surety Associates promised and represented to Plaintiff that if it would execute and return a document entitled 'Cash Collateral Escrow Agreement' IFIC would release the cash collateral securing the IFIC Bond Defendants then argue that plaintiff has not alleged breach. Based on the allegations, the Third Amended Complaint does not allege breach of a contract by the surety defendants. The surety had one obligation – alleged in paragraph 32, the surety agreed obtain from IFIC a bond to release the Mechanic's Lien. Paragraph 17 of the TAC alleges BEILMAN caused to be recorded on January 25, 2016 the IFIC Bond to Release Mechanic's Lien. Beilman performed on its essential obligation.

The Third Amended Complaint alleges breach as follows: the bond delivered was defective since it did not identify the mechanics lien and therefore provided no legal benefit whatsoever to Plaintiff. [TAC, ¶18]. However, it is not clear what difference this actually made or how plaintiff was damaged by the alleged defective bond.

The TAC also alleges: '(b) Beilman and Surety Associates did not cause the cash collateral to be released after the court entered its order releasing the mechanics lien; and (c) Beilman and Surety Associates did not cause the cash collateral to be released upon Plaintiff executing and delivering the Cash Collateral Escrow Agreement.' It appears that plaintiff is alleging that defendants promised a release of the mechanics lien after the court entered its order, but instead the defendants required an additional condition – the execution of a new Cash Collateral Escrow Agreement which contained new Calendar No.: Event ID:  TENTATIVE RULINGS

3018084  28 CASE NUMBER: CASE TITLE:  BEAR VALLEY 2005 LLC VS CAULEY [IMAGED]  37-2019-00010218-CU-FR-CTL attorney fee obligations.

If 'new conditions' were added, that would be IFIC and not the surety, who's only responsibility was to procure the release bond. They did what they contracted to do.

Finally, Defendants argue that Plaintiff has not alleged resulting damage. BEILMAN obtained and recorded the IFIC bond which allowed Plaintiffs refinance to close.

Because plaintiff has not alleged a breach of contract or damages, plaintiff has failed to state a cause of action against these defendants.

Promissory Fraud The TAC does not allege that BEILMAN/SASC promised to do something and then failed to perform.

BEILMAN promised only to obtain and record the IFIC Bond for BEAR VALLEY, which BEILMAN did (TAC paras. 11, 17). To the extent that IFIC Bond was defective and somehow caused BEAR VALLEY damages, it may support a claim for negligence but not promissory fraud. [Hydro-Mill Co., Inc., 115 Cal.App.4th at 1159-1160; Wilson v. All Service Ins. Corp. (1979) 91 10 Cal.App.3d 793, 799].

Motion to Strike Punitive Damages Given that plaintiff has not stated a cause of action for promissory fraud, the TAC fails to allege a basis for punitive damages. The motion to Strike is GRANTED.

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